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Tuesday, 30 June 2009

ONS screw up again, economy far more shot to pieces than previously imagined

The UK economy shrank by 2.4 per cent in the first quarter. Strange, It's never done that before, at least not for more than 50 years, so you would have though the ONS would have noticed. But no, they gave us a figure of 1.9 per cent decline, which has been revised to 2.4 per cent.

OK, that's enough on the ONS. Now for the really bad news. The 2.4 percent decline is the highest quarter on quarter decline in GDP since 1958, and the 4.9 per cent drop year on year is the highest ever recorded. So I guess that makes it a national record.

But remember folks, it is even worse than it looks. Government spending was still going up at around 5 per cent a year or 1.25 per cent in the quarter, representing, to within the width of a gnat's todger, half of GDP, so that for the whole economy to drop 2.4 per cent, the private sector must have dropped around 6.3 per cent (100%-(97.6%-50%*(1+6%/4))/50% for those who want to do the maths). If that kept up for a whole year would be a 27% decline in the real world economy, which would be a financial crisis of South American proportions.

So much for fiscal stimulus.

In other news, the household saving ratio fell to 3 per cent from 4 per cent in the final quarter of last year, as real disposable incomes dropped by 2.4 per cent.

Business investment fell by 7.1 per cent during the quarter, reflecting the fact that nobody wants to put money into a country that is efectively bust and will have to tax the living daylights out of the population to pay off its debts.

But the good news is that cash is so tight we have stopped spending so the balance of payments has improved with the current account deficit coming in at £8.5 billion in the quarter after £8.8 billion in the last quarter of 2008.

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